After the markets closed, DWDM specialist Infinera (NASDAQ:INFN, news, filings) reported its Q2 earnings, easily trumping analyst expectations. It has been my position for several quarters now that Infinera positioned itself very well during the recession by widening its customer base despite the meager carrier spending at the time. Those efforts are now, perhaps, beginning to tell, as Infinera’s Q1 results were also ahead of expectations and the company seems to be accelerating now that carrier spending has returned to more normal levels.
Revenues of $111.4M were up 16% from the first quarter and well above the consensus estimates of about $99.5M and its own guidance of $99-101M. Non-GAAP earnings per share was $0.03, up from a loss of $0.07 in the prior quarter and well ahead of the analyst consensus of a loss of $0.05. Non-GAAP gross margins expanded to 44%, also ahead of their guided range of 41-42%. This quarter there were four customers making up 10% or more of revenue: Level 3 and Global Crossing are known customers of course, but also the still unnamed leading internet content provider as the largest customer and the similarly unnamed top cable MSO. The only disappointing number was in new customer additions, which was just one this quarter – but as I mentioned they have been doing well enough on this count over past quarters, and they say the pipeline for new customers remains healthy.
Looking ahead to Q3, Infinera projected revenues growing to 125-128M, non-GAAP earnings per share of $0.07-0.10, and non-GAAP margins of 45-47%. All of those numbers will force analysts to reset their modeling assumptions, as consensus Q3 guidance was more like $102M and a loss of two cents per share. Level 3’s purchasing is expected to grow as a percentage of revenue in the third quarter, suggesting that the two company’s relationship remains close.
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The way that analysts and commentators as well as competitors seek understanding into what (3) is doing in the marketplace, at the same time their competitors are playing “follow the leader,” remains a continuous “disconnect” with its stock price.
“Take care of the business, and the stock price will take care of itself,” according to Buffett.
Will Buffett ever be proven right in this name or have the criminal elements running rampant inside of Wall Street during this wild, wild, west era, as they manipulate prices often times illegally, trump securities analysis to the extent that they bury this name even while they seek it out for “LEADERSHIP,” example?
Tune in next Tuesday, Batmen, but be mindful of the JOKERS, RIDDLERS and other criminal operators who will continue attempting to drive the final stake into (3)’s heart.
Still not seeing anything other than the typical 40% gross margins common for optical equipment. Financially, photonic ICs look a lot more like traditional optical transport muxes and switches than electronic ICs. This was not supposed to be the case according to the hype they put out a few years ago. It’s really noticeable when you see $84 million sitting in inventory and $57 million in quarterly cost of product sold. Extremely hard to top 50% gross margin when you’ve got a 120 day inventory cycle.
That said, still an excellent top line quarter for them, and their optical equipment competitors are paying for screwing around with Ethernet switches they can’t sell.